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Shtokman project not dead but needs reorganisation

October 24, 2012, 19:09 UTC+3

Shtokman field production is scheduled to begin in 2016

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MOSCOW, October 24 (Itar-Tass) — Shtokman Development AG, which operates the Shtokman field, has sent recommendations to Gazprom regarding the reorganisation of this project.

Andrei Krivorotov, head of the Corporate Affairs Department at Shtokman Development AG, told Itar-Tass on Wednesday, October 24, that the company has summarised and systematised the findings of four years’ surveys and prepared recommendations for Gazprom as the holder of the license for the development of the field.

“The Shtokman project is not dead and it has not been stopped. Both Gazprom as the license holder and potential foreign partners are still interested. It is just that everyone agrees that the project needs to be reorganised and restructured with respect to the new conditions,” Krivorotov said.

He said that the Shtokman shareholders have come to the conclusion that it is impossible to make the final decision on the project now due to serious changes that have occurred in the global gas market over the past several years.

Krivorotov recalled that Norwegian Statoil is not giving up its participation in the project even though it is no longer its shareholder.

Statoil is now engaged in negotiations with Gazprom to commercialise the Shtokman project and is still interested to join in.

An ex-member of Shtokman Developemnt AG and Statoil Senior Vice President for the Europe and Asia business, Torgeir Kydland, has left the board of Shtokman Development AG (SDAG), but he still believes that Statoil can play a role in the Shtokman project if the conditions are favourable.

“We need a commercial concept to justify the large investment,” Kydland said. “We have a broad and strong portfolio of projects worldwide competing for investments, and Shtokman is competing on the same level as other projects.”

The investment decision has been postponed several times based on framework conditions, high investment costs and uncertain profitability. At the same time, the energy realities have changed. Large natural gas deposits, especially onshore U.S., have impacted the gas market fundamentally, the company said.

“We have worked with Russia for several decades,” Kydland said.

“Our cooperation with the Russian authorities is good, and in May we signed a cooperation agreement with the Russian company Rosneft. We have come to Russia to stay, and if it is possible to find a common commercial solution for Shtokman we are still interested in joining the project,” the official said.

Earlier this year Statoil repatriated most of its staff who were deployed to work for SDAG as part of reducing its current joint venture costs.

“The Shtokman field consists of large proven natural gas resources, and field production is possible if we find the right solutions,” Kydland said.

“We have made progress, for example we have found out that we can use the technology we have developed on the Snohvit field to reduce costs. Russia has also taken steps towards preparing better framework conditions for offshore developments, but we still have some work ahead of us before we can sign any new agreement,” he said

The unique technical nature of the Shtokman project, its scale, together with the need to spread the project risks — all this created a need to combine the financial and engineering strength of some of the world’s biggest oil and gas corporations.

Phase 1 of the Shtokman Project is being implemented by Shtokman Development AG, a company established in February 2008. The plan for Phase 1 is to produce 23.7 billion cubic metres of natural gas per year.

Shtokman Development AG is a joint project created by three industry leaders — Gazprom (51 percent), Total S.A. (25 percent) and Statoil ASA (24 percent). However since no solution could be reached for the Shtokman development within the framework of the Shtokman Development AG joint venture, in which Gazprom, Total and Statoil were joint owners, Statoil returned its shares in SDAG to Gazprom after the current agreement expired on June 30.

SDAG was intended to be the owner and operator of the project infrastructure during Phase 1 — for a period of 25 years from the start of field production.

Shtokman field production is scheduled to begin in 2016. The LNG Plant is scheduled to be commissioned in 2017.



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